A key economic issue is whether poor countries or regions tend to grow
faster than rich ones: are there automatic forces that lead to convergence
over time in levels of per capita income and product? After considering
predictions of closed- and open-economy neoclassical growth theories, we
examine data since 1840 from the U.S. states. We find clear evidence of
convergence, but the findings can be reconciled quantitatively with
neoclassical models only if diminishing returns to capital set in very
slowly. The results from a broad sample of countries are similar if we hold
constant a set of variables that proxy for differences in steady-state
characteristics. Two types of existing theories seem to fit the facts: the
neoclassical growth model with broadly-defined capital and a limited role for
diminishing returns, and endogenous growth models with constant returns and
gradual diffusion of technology across economies.
*Published:
Published as "Unanticipated Money, Output, and the Price Level in the United States", Journal of Political Economy, Vol. 86, no. 4 (1978): 549- 580.
Published as "Unanticipated Money Growth and Unemployment in the United States: Reply", American Economic Review, Vol. 69, no. 5 (1979): 1004-1009. Published as "Unanticipated Money Growth and Unemployment in the United States", American Economic Review, Vol. 67, no. 2 (1977): 101-115.
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